United States

Utilities take control and turn producers

US: US wind power producers' customers are becoming their competitors as regulated utilities look to meet renewables quotas by owning and operating their own wind farms.

Utilities are wielding their muscle and taking a growing share in the US market, say analysts. About 15% of wind capacity in the US is now held by utilities, says Tim Stephure, a senior analyst with Cambridge-based IHS Emerging Energy Research. Four of the biggest utilities ranked among the top 30 wind owners in North America in 2009, he adds. Iowa-based MidAmerican Energy Holdings, with more than 2GW online by the end of that year, was fourth overall and first among utilities.

"MidAmerican really led this charge in 2008 with a very prolific wind build in that year," Stephure says. "That has since been followed by many other utilities that are looking to build on that business model."

He points to the fact that six utilities developed at least 100MW each of wind in 2009, something that has never occurred before.

The drivers behind what Stephure calls a large and important trend are the need to meet legislated state renewable electricity standards and reduce carbon. Some see owning wind generation, rather than going the established route of contracting for it, as a more cost-effective way of meeting those goals.

Buyers' market

Changes in the US wind market are also having an impact, says Stephure. When turbine supply was tight and engineering, procurement and construction (EPC) contractors were booked solid, utilities usually relied on the ability of independent power producers to leverage long-held relationships to procure equipment and get projects built. In today's buyer's market, that competitive advantage is much less relevant.

"Right now, a utility can go and have its pick, basically, of any turbine technology that it chooses," says Stephure. "And a number of EPC contractors are readily available to meet the demand."

Another factor, he adds, is the experience some utilities have gained by working with independent producers to bring wind on to their systems. "Their perception of risk in these projects has been greatly reduced," he says.

In some cases, utilities have become so comfortable that they are starting to carve out a place for themselves as project developers. Puget Sound Energy, a utility in Washington state, bought full ownership rights to the 1.4GW Lower Snake River series of projects from its joint venture partner, RES Americas. "This is still a very early-stage project and there are still a lot of project development risks," says Stephure. "The fact that Puget Sound has felt comfortable in taking on these risks by themselves, with RES taking on more of an advisory role rather than ownership role, is very interesting."

Other developers have also had to adapt to a changing relationship with utilities. At the end of last year, California utility PG&E announced a deal to buy the 246MW Manzana wind farm from Spanish developer Iberdrola Renovables. "Iberdrola traditionally does not sell projects turnkey (as complete ready-to-go projects)," says Stephure. But the company may have compromised in this instance, he says, with an eye to the future in a state where renewable electricity mandates are expected to drive strong demand. "PG&E was able to leverage its position as a major utility with a lot of wind demand, and perhaps the need to sign a lot of power purchase agreements in the future, to get Iberdrola to sell this project."

The changing relationship between utilities and wind power producers can be an uneasy one, particularly when giants collide. When MidAmerican unveiled plans to build 1GW of wind power in Iowa by 2012, Florida-based NextEra Energy Resources, the US's leading wind producer, went before state regulators to argue it could provide better value to consumers through a mix of long-term power purchase contracts and the outright sale of NextEra projects to MidAmerican. "NextEra saw this as a very big threat to their business plan," says Stephure. "The Iowa Utilities Board ruled in favour of MidAmerican, saying it could do those projects at the most competitive rates, whereas NextEra's projects were coming in at a slightly higher cost. That is still being contested."

In a similar dispute, the Wisconsin Public Utilities Commission rejected a request from Chicago-based developer Invenergy to only allow WE Energies to build its 162MW Glacier Hills wind project contingent on the utility also buying power from Invenergy's yet-to-be-built Ledge Wind Farm.

Stephure says he expects to see such jostling continue as the market continues to evolve.

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